China’s Easing Economy May Balance Steel Prices

China’s efforts to slow down the frenzied pace of its market growth has led analysts to anticipate steel prices will level off as a result. But even with China attempting to apply its economic brakes, world demand is expected to continuing rising— just at a more manageable rate this time, analysts say. Steel prices have doubled, even tripled in recent months, resulting in slimming profit margins for

Terrence Nguyen, web editor | Jun 04, 2004

China’s efforts to slow down the frenzied pace of its market growth has led analysts to anticipate steel prices will level off as a result. But even with China attempting to apply its economic brakes, world demand is expected to continuing rising— just at a more manageable rate this time, analysts say.

Steel prices have doubled, even tripled in recent months, resulting in slimming profit margins for manufacturers and truck OEM’s, or rising prices of finished goods as manufacturers pass on the costs to consumers. For example, Wabash National announced raising trailer prices from 4.5 - 6% in March because of sky-high steel costs. (See Sky-High Steel Prices Rippling Through Trailers)

“It’s not a matter of demand falling, it’s a matter of supply increasing,” Steve Latin-Kasper, NTEA market data and research director, told Fleet Owner. Slowing down the rate of demand and giving suppliers a chance to catch up could keep inflation, caused by rapidly skyrocketing prices, at bay.

“Eventually we will achieve a new equilibrium and things will be normal again,” Latin-Kasper said. “How long that will be is anyone’s guess.”

Achieving a supply-demand equilibrium depends on whether Chinese officials are successful, Latin-Kasper said. He stressed that it is in China’s best interest to live up to its word on this issue, because severe inflation would force China to readjust the value of its currency— something China doesn’t want to do “unless absolutely necessary.” However, there are no guarantees.

“With China working now to slow its economy, prices for steel should fall sooner rather than later,” Latin-Kasper said. “None of this is a sure thing— just because China is talking down its economy doesn’t mean it’ll happen. But given the amount of power its politicians have over the economy, chances are they could slow thing things down a little.”

According to The Wall Street Journal Online, the price of hot-rolled steel coil has dropped to $390 a metric ton from $460 a metric ton in April; scrap steel fell $100 a ton after rising to record highs earlier this year.

Tom Mele, president of Connecticut Metal Industries, a broker of recycled metals, told Fleet Owner that China has slowed its importation of steel by recently implementing duties and requiring exporters to apply for licenses.

“All our exports to China ground to a halt as of a few weeks ago,” Mele said, adding that demand has appeared to level off recently.

“It’s been lower in the domestic market as well— we’ve overloaded the suppliers,” Mele said. “We’re not sure whether it’s demand or roadblocks the [Chinese] government has imposed.” According to Mele, the next orders his company is taking are booked for July.

However, despite the short term slackening, Mele anticipates steel prices remaining high due to sustained high demand and rising transportation costs. However, two of his major customers, Nucor and US Steel are now “at capacity.”

“Demand is leveling out. We’re starting to see a balance in supply and demand,” Mele said.

Latin-Kasper concurs, although the frenzied commodity price increases that occurred a few months ago won’t come back in the foreseeable future.

“What happened last month was a bit of an aberration— this causes a problem in the short term but eventually markets adapt,” Latin-Kasper said. “Demand for steel is going to continue rising, just not as quickly as it was, and steel makers will have a chance to catch up.”

However, suppliers and manufacturers shouldn’t expect to see prices to plummet either.

“We’re not going to go back to where we were six months ago,” Latin-Kasper said. “Global demand in total is still growing. As capacity starts getting used up— which it will— prices will remain high.”